Monday, June 10, 2013

Rental yields decrease as house prices grow faster than rents

Analysis from Countrywide lettings agency shows that yields remain strong despite a decrease of 0.1 per cent in May.  Yields declined in all regions apart from East of England where they have increased 0.2 per cent to 6.2 per cent and Scotland where they increased 0.1 per cent to 5.8 per cent. Yields remained the same in the South West and the Midlands at 5.7 per cent and 6.5 per cent respectively. The greatest yields are being achieved in Wales at 6.6 per cent, the Midlands at 6.5 per cent and the North at 6.4 per cent.

Average Monthly Rents: Two and three bedroom properties saw the greatest increase in average monthly rent, with a 0.5 per cent and 0.3 per cent month-on-month increase to £770pcm and £884pcm respectively. The average monthly rent for one bedroom properties was £674pcm, a decrease of 0.6 per cent on April and for four plus bedroom properties it was £1,363pcm, a decrease of 2.1 per cent on April.
Rent arrears: Rent arrears remained the same or fell year-on-year in all regions apart from Scotland and East of England. In Scotland they increased 4.6 per cent and in East of England they increased 0.1 per cent.
In terms of property sizes the level of rent arrears fell for all property sizes, with three and four plus bedroom properties seeing the greatest decreases at 1.2 per cent and 1 per cent respectively.
Average monthly rent by region
Wales has seen the greatest increase in average monthly rent, up 4.9 per cent on April 2013, followed by Scotland (up 2.2 per cent), the North (up 1 per cent) and South West (up 0.5 per cent).
Despite some regional increases the average monthly rent in England, Scotland and Wales fell 0.2 per cent in May, which is the first month it has fallen since January 2013, but rents are still 0.8 per cent higher year-on-year.
The Midlands has seen the greatest decrease in average monthly rents, down 1.4 per cent month-on-month, followed by South East and Central London, both down 1.3 per cent. Scotland has the lowest average monthly rent at £617pcm and Central London the highest at £2340pcm.
Commenting on the Index, Nick Dunning, Group Commercial Director at Countrywide plc, said: “Countrywide’s second Monthly Lettings Index reveals that house prices are growing faster than average monthly rents in some parts of the country, resulting in a slight decrease in yields over the past month.  Despite the decrease in yields in May, rental yields remain strong and are providing attractive returns for buy-to-let investors compared to other types of investment.”
“The fall in average monthly rents for four plus bedroom properties reflects consumers decisions to source cheaper properties to rent to try to keep living costs down, thus demand is higher for smaller rather than larger rental properties. This is particularly true for first-time buyers who are saving for a deposit to buy their first home. However, the summer is traditionally a busy time for the lettings market as demand for rental accommodation picks up, with many perspective tenants wanting to move in and be settled by September. Whilst in May supply for rental properties and demand was more balanced, the average monthly rents are likely to rise over the summer months as demand increases during this period.”